Experts say SBP won’t intervene
Tuesday, January 05, 2010
By Saad Hasan
KARACHI: The rupee dropped to a new low of Rs84.65 on Monday, down 0.44 per cent from Saturday’s close of Rs84.25 as importers rushed to buy US dollar to make oil payments, dealers told The News.
The weighted average at which commercial banks bought and sold the dollar was Rs84.33 and Rs84.52 respectively, the State Bank of Pakistan (SBP) said. Average exchange rate on Saturday was Rs84.20 and Rs84.39.
“Normally, there is pressure on the rupee on first Monday of a month because the government settles commodity import payments,” said a dealer at a bank. “But mainly there was increased demand for dollar to make oil payments.”
Pakistani currency has seen fluctuation in the past three weeks. Since December 14, refineries are borrowing from the banking system for importing crude oil.
Dealers say the rupee will continue to remain under pressure as banks scramble to arrange foreign currency for importers of petroleum products and crude oil. Earlier, the central bank was using its foreign exchange reserves for importing crude.
The inter-bank market has already been meeting the requirement for import of petroleum products like diesel since July 15, 2009. Transfer of oil payments from the SBP to commercial banks was part of the International Monetary Fund’s lending framework to correct macroeconomic imbalances.
Out of $10 billion spent on import of oil in 2008-09, about $5.5bn were used for petroleum products and $4.4bn for crude oil. The July-Oct period of 2009-10 saw a substantial drop in total oil import bill to $3.4bn from $5.38bn in the same period last year.
Malik Boston, head of a foreign exchange firm, said the rupee would stabilise once the pressure of import payments eased. “Pakistan has to pay ($600 million) in installment of IMF loan later this month but that won’t affect the exchange rate.”
Foreign debt payments are met by the SBP from its reserves which have risen to $10.29 billion, in part because of IMF loans.
The lending framework bars the central bank from using its foreign exchange reserves to make import payments. This is one reason the SBP is not intervening to support the rupee.
Sayem Ali, an economist at Standard Chartered, said maintaining reserves was the first priority of the central bank since the country had to pay approximately $3.5bn of debt annually. “Even the SBP’s support didn’t help to stop the rupee from sliding last year,” he said, referring to a 6 per cent depreciation of the currency in 2009 when central bank’s reserves were used to make oil payments.
He said avoiding a balance of payments’ crisis, which had forced the government to seek IMF’s help in November 2008 in the first place, was more important. “Concerns over inability to pay international debt can scare off the limited foreign investment.”
Pakistan was expected to receive $2.5bn from the World Bank and ADB, he said, adding the rupee would also stabilise after that.
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